Aging Options

Safe Harbor Trusts

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Traditional Estate Planning is based on notions that may be out of sync with today’s realities. They deal with the notion that estate planning should be undertaken for the benefit of removing the troubles for the heirs; the assumption being that one will go to sleep and never wake. This article talks about how Safe Harbor Trusts can help with these problems.

Another assumption in the minds of many still is that when they die Uncle Sam will come to claim part of their estate.   The reality is that Uncle Sam, at the Federal level will only look for its pound of flesh if your estate exceeds $5 million for a single person and $10 million for a couple in 2011. The State of Washington will exact the estate tax price for any estate that exceeds $2 million for a single person and $4 million for a married couple.

Most of us will not have to worry about this. Worrying about heirs is something that is valid. But assuming that we will go to sleep one day and never wake up may not be as realistic today as it was twenty years ago when we were expected to live only a few years in retirement.

Today, thanks to modern medicine and medical advancements many of us will live many, many years in retirement. For a significant number of us many of these years will be spent living with debilitating chronic care conditions which will make us dependent on others for our day-to-day living activities: getting out of bed, transferring, bathing, toileting, walking, eating, dressing etc. etc.

Statistics from the Alzheimer’s Association suggest that one out of eight individuals who turn 65 will deal with dementia related disabilities; and that number reaches an astounding one out of every 2 individuals who reach the age of 85. For a nation where the fastest growing segment of our population is 85 plus, this is not good news. And yet traditional estate planning is largely silent about this issue.

Is there something that can be done about this issue? Can you do anything today to try and protect assets from uncovered long term care costs that can be quite catastrophic for those who face this situation? The answer is yes.

But only if your goal is to engage in legal planning that will allow you to protect your assets from uncovered long term care costs over which you may have no control and you care to maximize your quality of life. If these issues are not important to you, tune me out. Otherwise, read on . . .

To begin with, understand that families that face chronic disabilities are going to be facing bills that will likely exceed their monthly income by a significant margin and thus eating away at the assets that they so carefully put away to enjoy in their golden years.

Sadly, the people who are most at risk are those who have estates between $50,000 and $1.5 million. For larger estates the issue is not financial, rather the issue is managing finances and care needs.

For the poor, Medicaid is there to cover their needs.

Safe Harbor Trusts – For The Rest of Us

For the rest of us, who have worked hard all our lives, avoided having purchased brand new cars every year or otherwise live beyond our means, we are left with no choice but to spend down our estates.  Those who have been careless and splurged and not saved and done the responsible thing will qualify for Medicaid.  But for the rest of us, the issue is engaging in legal planning that will allow us to access assistance with these uncovered long term care costs so our hard earned savings do not disappear.

Most of us who have worked hard and saved for our rainy day have two hopes and desires: (1) to live our golden years in as much comfort as possible without having to face the possibility of going broke; and (2) having a desire to leave a bit of our estate to our children.

However, families who face chronic illnesses: Alzheimer’s, Parkinson’s, after effects of stroke or heart attack etc., are robbed of these goals. Many in this situation will actually run out of resources before they run out of life (like my in laws did); many will take drastic measures to protect their assets or feel guilty about being forced to consider drastic measures such as divorce or legal separation or gifting assets to their children in order to qualify for Medicaid benefits.

Here’s what you can do

But much of this can be avoided. Here are your options:

To begin with, your estate planning can and should incorporate the use of A Safe Harbor Trust, commonly referred to as A Special Needs Trust, in your Wills. We have used trusts for many years to help people with large estates that would be subject to estate taxes to avoid or minimize the incidence of estate taxes. Here is how the concept works. In the case of married couples, each spouse has the ability to leave $2 million to his/her heirs without having to worry about paying estate taxes. However, most people have wills that say if spouse 1 dies everything goes to spouse 2 and vice versa. Assume that your estate was worth $3.5 million dollars. Under our community property laws, most couples would control half of this estate, which means that the husband would be deemed to own 1.75 million and the wife would be deemed to own 1.75 million. But the community property laws do not say that the spouse must leave his/her half to the other spouse, indeed the half can be left to anyone the spouse chooses. The impact of dying with the traditional estate plan where the husband’s half would go to the wife and wife’s half would go to the husband, is that the remaining spouse will own the entire 3.5 million estate.   Then when that spouse dies he or she can only leave $2 million of that free of estate taxes, the other $1.5 million would be subject to estate taxes. We do not like that result.  So instead we say to the couple that rather than leave a will that says that upon the death of one of you, your $1.5 million will go to a tax shelter trust, which will be available to the remaining spouse for his or her needs, but will not be counted as part of the surviving spouse’s estate for purposes of estate taxes. This way when husband dies his half does not go to the wife and then when the wife dies she only has $1.5 million in assets and therefore there is no estate tax on this estate

Safe Harbor Trusts Help With Smaller Estates

The use of Safe Harbor trusts is similar to this concept but is used in estates that are not large enough to lead to estate tax issues. The purpose of this planning is so that if in the future a spouse needs to access a nursing home or needs nursing care at home and the costs will be prohibitive, one could reach out to the Medicaid program for some assistance. Medicaid is only available to those with less than $2,000 in assets.  Traditional estate planning calls for the spouse’s share of the assets to go to the remaining spouse in order to qualify for Medicaid.  However this leaves the remaining spouse with all of the assets.  Those assets must then be spent down to $2,000 before being able to access Medicaid for his or her own benefit.  Another option would be to direct the spouse’s half of the assets to the Special Needs Trust. The assets in this trust will not be counted as being owned by the surviving spouse.  As a result, if the surviving spouse must look to Medicaid at least half of the estate is protected.   Congress sanctioned this planning opportunity but do not expect the government to do it for you.  It is up to you to incorporate this in your estate plan.

Now let’s look at your quality of life while you are living.  Most of us who have taken time to execute an estate plan will have named a loved one as our agent who will be responsible to looking after our care needs when we reach a point that we are unable to do so ourselves. Usually it is a spouse or a child or other family member. But think about the issues they have to deal with.  Say you are dealing with Alzheimer’s disease.  The agent reaches out to your doctor to ask what they should be doing and the doctor says that you should start looking for a nursing home or an appropriate institution. This is institutional bias.  So the agent follows the prescription written by the doctor directing nursing home placement. But is this an appropriate choice? Is there any chance the doctor was wrong? Are there alternatives to the nursing home? It is not appropriate to leave your agents the awesome responsibility to look after your care needs without providing them with something more than just an expectation that they are to look after you.

Plan Ahead

You have heard me speak of Geriatric Care Managers on my radio show. Indeed, as a lawyer I employ two of these professionals in my office and ask them to guide me in planning my clients’ affairs.  A geriatric care manager is usually a nurse or a social worker with experience in a hospital or a nursing home setting or both. They know how the long term care system works. The manager can assess whether or not you can continue to stay at home and if so what interventions will need to be put in place. They can help determine the least restrictive alternative to a nursing home if staying at home is not possible.  Those options include adult family homes, assisted living facilities or boarding homes.

Why start with a nursing home when better and less expensive alternatives exist? You need to include directives in your powers of attorney that you do not wish to burden your agents with the heavy decisions they might have to make without providing them some resources and to that end you wish to direct them to use your estate assets to procure the services of a qualified geriatric manager to assist them with long term care decisions. This will serve to provide you a better quality of life and will not make the task a heavy and almost unbearable chore for your agents.  This provision is something that you seldom find with traditional powers of attorney because most powers of attorney are drafted with the aim of protecting and growing your estate and not providing for your quality of life. You have the opportunity to change that paradigm in your own powers of attorney.

Are these enough reasons to reconsider your current estate plan? I hope so. See a good elder law attorney (see NAELA) who is familiar with these issues. Better yet, see one who has walked the walk and cared for an aging parent and has lived the standards you espouse. If you wish to stay at home, see an elder law attorney who has been successful in keeping a parent at home when the doctors and others said that it was time for a nursing home. Ask questions.  If you don’t know of such an attorney, you do now.  I have walked this walk.


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